Are banks not lending, or is demand slowing?

Small business lending by New Mexico’s community banks declined in 2012, an indication that either loan demand remains soft or regulations have scared banks into making fewer loans.

Demand isn’t depressed everywhere in the state, though. Southeastern New Mexico is booming because of high oil prices, and the northwest corner is depressed because of low natural gas prices and a rush by exploration companies to find gas elsewhere, bank experts say.

Small business loans, which the Federal Deposit Insurance Corp. defines as loans of $1 million or less, totaled $1.14 billion in 2012, down from $1.2 billion in 2011 and from $1.6 billion in 2010, according to FDIC statistics.

The number of loans for $1 million or less fell to 5,579 in 2012 from 5,825 in 2011 and 7,411 in 2010.

Jerry Walker, president and CEO of the Independent Community Bankers Association of New Mexico, says the numbers indicate a continuing soft demand, particularly in the Four Corners region.

“For example, in the Four Corners area we had the news that ConocoPhillips will stop drilling [new wells] for natural gas, and you have the southeast corner where things are going good,” Walker says.

“Albuquerque and Rio Rancho seem to be showing a bit of life, but in Farmington and the Four Corners and Grants things are not that good, and the recovery hasn’t hit those places. New Mexico still hasn’t enjoyed a recovery that some areas of the U.S. have.”

Walker adds that he’s hoping the tax reform package of bills signed recently by Gov. Susana Martinez will spur economic activity, but he’s not sure. Small businesses remain “very cautious” about taking on new debt, Walker says.

For Bob Coleman, editor of the California-based Coleman Report newsletter on banking, it’s difficult to determine exactly how much small business lending there is and why it appears to be down.

“There are no standard definitions of small businesses. The reporting is all over the board,” Coleman says.

“You have some reports saying that it is increasing, and then you read other reports saying it is down.

“Bankers say there is a demand problem and not enough qualified people walking through the door, and then you talk to small business owners and they say, ‘We just can’t get loans.’

“Anecdotally, there is more lending available than last year, although it is a very minimal amount and below levels where we need to be.”

Small businesses that can’t get loans from banks or credit unions are increasingly turning to alternative lenders, and some of those alternative loans are expensive.

“If you’re a restaurant and the refrigerator goes down, you’ll need $5,000 immediately or go out of business,” Coleman says. “I think you’ll see more and more businesses taking advantage [of alternative lenders] because it is difficult to get funding from banks if you are a small business.”